If you buy books from Amazon, Amazon is going to know what you bought.
If you use whispersync, Amazon is going to know various things about how far you've read in the book.
If you e-mail "personal documents" (i.e., other books) to your kindle, Amazon is going to know what it is called, how many "locations" it has, and other data it needs for whispersync.
If you use the lending library, it will know what books you lend.
If you lend a book to another Kindle owner, Amazon will know that, and how long they had it.
If you borrow library books on your Kindle, Amazon will know that.

And of course they know your CC information, address, and any reviews you may have written.

I'm probably forgetting some things, but all of that information is necessary for Amazon to provide various bits of useful functionality. I would be surprised if Amazon really knew much more beyond this - but it seems like they already know quite a bit as it is.